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Most stocks tumbled last year. The S&P 500 hit its 2022 pinnacle on Jan. 3 and proceeded to plunge into a brutal bear market, ending the year down 20%.
Chevron (CVX 1.07%) stock, however, went in the opposite direction. Shares of the oil giant surged 50.5% from that market peak to the end of the year, according to data provided by S&P Global Market Intelligence. While higher oil prices helped fuel that rally, it wasn’t Chevron’s only catalyst. Here’s a look at whether the oil stock has the power to continue producing winning returns in 2023.
Chevron feasted on higher oil and gas prices last year. The energy giant posted a record profit of $11.6 billion in the second quarter. It followed that up with its second-best earnings in the third quarter, at $11.2 billion. The company also posted record operating cash flow of $15.3 billion in the third quarter.
Chevron allocated its windfall across its four financial priorities:
The other big catalyst fueling Chevron’s rally last year was Warren Buffett. His company, Berkshire Hathaway, bought a boatload of Chevron stock. Berkshire owns over 169.7 million shares, or 8.8% of Chevron’s outstanding stock. The position is worth nearly $30 billion, representing 9.1% of Berkshire’s portfolio and its third-largest holding. Berkshire’s heavy buying of Chevron likely led other investors to add the oil stock to their portfolios.
Chevron expects oil prices to remain robust in 2023. The company’s CEO, Michael Wirth, has said he believes that supplies will remain constrained due to policy issues, Russia’s invasion of Ukraine, underinvestment by the industry, and OPEC. That leads him to think that the risk skews toward the upside in oil pricing. Many others in the industry agree that there are more upside catalysts for oil prices than downside pressures.
That view is leading Chevron to increase its capital investments by 25% this year. A big driver is the continued ramp in its lower carbon investments. That positions the company for future growth while also allowing it to capitalize on higher oil prices. Because of that, the oil stock could keep winning.
Matthew DiLallo has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway, short January 2023 $200 puts on Berkshire Hathaway, and short January 2023 $265 calls on Berkshire Hathaway. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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